What are GIPS rules for including portfolios in composites?

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AcadiFi · Accepted Answer

GIPS has strict inclusion and exclusion rules designed to prevent cherry-picking and ensure composites fairly represent the firm's track record for each strategy. **Must be included:** - All ACTUAL, FEE-PAYING, DISCRETIONARY portfolios managed to the composite's strategy - Portfolios must be included from inception (or first full period after) and cannot be added retroactively - Inclusion begins at the start of the first FULL performance measurement period under the firm's management **Must be excluded:** - Non-discretionary portfolios (client-imposed restrictions that materially affect implementation) - Non-fee-paying portfolios (may be included at firm's option, with disclosure) - Simulated/model/backtested portfolios - Portfolios below the stated composite minimum **Terminated portfolios:** must remain in composite history through the last full period under management. Cannot be retroactively removed to improve the composite. **New portfolios:** added to composite on a timely basis per firm policy (commonly next full month or quarter after funding). Example: Fernleigh Wealth Advisors runs the 'Fernleigh Dividend Growth' composite with $500K minimum. In March 2026, the firm funded three new accounts at $800K, $1.2M, and $450K. The $450K account is excluded (below minimum); the other two join the composite starting April 1 per firm policy of next-month inclusion. ```mermaid flowchart TD A[Portfolio evaluated] --> B{Fee-paying?} B -->|No| C[Optional include
w/ disclosure] B -->|Yes| D{Discretionary?} D -->|No| E[Exclude] D -->|Yes| F{Meets strategy and min?} F -->|Yes| G[Include from first full period] F -->|No| H[Exclude or diff composite] ``` When a client imposes a new restriction mid-period (e.g., 'no tobacco stocks') that materially changes strategy, the portfolio may need to be removed from the original composite and placed in a different composite or excluded. Firm must document discretion determination criteria.

What are GIPS rules for including portfolios in composites?

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